Mortgage holders might have to wait until next year for more rate relief after a sharp rise in services inflation all but killed off the already slim chance of a September cut.
The consumer price index climbed from 2.8 to three per cent for the year to August to reach its highest level in more than a year, the Australian Bureau of Statistics reported on Wednesday.
While the result was above consensus predictions of 2.9 per cent, volatility around energy prices highlight why the Reserve Bank takes the headline monthly figures with a grain of salt.
But an “ugly” re-acceleration in price growth for services – such as restaurant meals, insurance and audio-visual services – would concern the central bank board, NAB senior markets economist Taylor Nugent said.
“Market services prices had been running at a thoroughly benign pace over recent quarters,” he said.
“They are going to be hot in Q3, muddying the RBA’s assessment of the supply and demand balance in the economy and shifting their assessment of the balance of risks as they look forward.”
Eating out and takeaway prices rose 3.3 per cent in the 12 months to August, the strongest annual rise in the past year, as restaurants passed on higher labour and ingredient costs.
Mr Nugent said the jump in services inflation was at odds with stable indicators of labour market tightness and capacity pressures, but cannot be ignored.
NAB now expects the RBA to stay on an extended pause until May, after previously forecasting cuts in November and February.
It makes NAB the first of the big four banks to break from their prediction of a November cut.
The rise in the CPI was driven by food, housing, and alcohol and tobacco.
Electricity costs rose 24.6 per cent in the 12 months to August, while new dwellings rose 0.4 per cent as project home builders lifted prices and slashed promotional offers.
The bureau’s head of prices statistics Michelle Marquardt attributed this to higher out-of-pocket costs for consumers as government energy rebates rolled off.
“Excluding the impact of the various changes in commonwealth and state electricity rebates over the last year, electricity prices rose 5.9 per cent,” she said.
The headline monthly figure had held below three per cent since August 2024, but surged from 1.9 per cent to 2.8 per cent in a surprise result for July 2025.
While the higher headline inflation rate won’t be welcomed by the central bank, it is unlikely to cause a drastic shift in its monetary policy thinking.
The RBA, in its latest economic forecasts released in August, predicted the headline figure to climb above the top of the 2-3 per cent target range by the end of the financial year, as government energy rebates cease.
The Reserve Bank’s preferred measure is underlying or trimmed mean inflation, which removes volatile items like electricity prices and is included in the more reliable quarterly print next out in October.
The monthly annual trimmed mean fell from 2.7 per cent to 2.6 per cent.
With July and August figures now known, the trimmed mean was tracking at 0.9 per cent on a quarterly basis, which gave the RBA little space to ease further, said JP Morgan economist Ben Jarman.
The fall in the trimmed mean showed the “very substantial and sustained progress” in getting inflation under control, despite increased global volatility, Treasurer Jim Chalmers said.
“Underlying inflation has now been within the Reserve Bank’s target range for nine consecutive months, and that’s a very good thing,” he told reporters in Brisbane.
The RBA board begins its next interest rate meeting on September 29, but analysts and markets predict it will wait until at least November to announce another rate cut.
